Expected to pay for itself from the cost savings

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Reference no: EM131074632

Company Z is considering purchasing a robotic welding machine which is estimated to reduce expenses by $54,000 per year. The machine will have no effect on revenues but is expected to pay for itself from the cost savings. The welding machine costs $126,000 and will be depreciated on a straight-line basis for 3-years ($42,000 per year at t=1, t=2, and t=3). The machine is expected to be sold after 3 years for $30,000. The purchase of the machine would require an increase in inventory of $6,000 and an increase in accounts payable of $1,000 at t=0, and the net operating working capital is expected to be recovered at t=3. Company Z’s marginal tax rate is 40%. Fill in the following information and calculate the NPV assuming the project’s cost of capital is 9%.

Year 0 Year 1 Year 2 Year 3

Operating Cash Flow ___________ ___________ __________

Capital Spending _____________ ___________

Reference no: EM131074632

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